Fiscal 1998 Third Quarter Results Reported by K-tel International, Inc.;
K-tel Express, www.ktel.com, Receives One Million Site Visits in First Three
Days
Business Wire - May 05, 1998 17:54
%K-TEL-INTERNATIONAL KTEL %MINNESOTA %ENTERTAINMENT %INTERACTIVE %MULTIMEDIA %INTERNET %COMED
%EARNINGS V%BW P%BW
MINNEAPOLIS--(BUSINESS WIRE)--May 5, 1998--K-tel International Inc. (Nasdaq:KTEL) Tuesday reported financial results
for the nine-month and three-month periods ended March 31, 1998.
Net sales for the nine months ended March 31, 1998, were $64.8 million with net income of $693,000, or $0.09 per share, after
giving effect to the company's 2-for-1 stock split effective for shareholders of record on May 1, 1998.
Net sales for the same period last year were $51.2 million, with net income of $3.1 million, or $0.40 per share, which included a
one-time net benefit of $850,000 related to the recovery of legal expenses. Net income for the nine months ended March 31, 1997
excluding this $850,000 benefit, would have been $2,264,000, or $0.29 per share.
Net sales for the third quarter ended March 31, 1998, were $16.4 million compared with net sales in the third quarter of fiscal 1997
of $18.5 million. The company reported a net loss for the third quarter of $952,000, or $0.12 per share, after giving effect to the
company's 2-for-1 stock split payable on May 8, 1998, compared with net income of $510,000, or $0.06 per share, for the third
quarter of fiscal 1997.
The company attributes the drop in sales and the loss during the quarter to the curtailment of its domestic third-party media-buying
operations, which had an operating loss of approximately $900,000 for the quarter. The company continues to narrow its focus and
concentrate resources on its existing primary businesses -- music distribution and direct response marketing, and its newly
launched Internet retailing business.
On May 1, 1998, the company launched its new on-line music service, "K-tel Express" (www.ktel.com), featuring a wide
spectrum of music products for purchase by the public across the globe. Open for commerce 24 hours a day, 365 days a year,
K-tel Express features more than 250,000 music titles available at value prices through this on-line shopping service.
K-tel's President, David Weiner, said: "We are pleased with the public response to last week's launch of K-tel Express. In its first
three days of operation, K-tel Express had more than one million visits, but this may not be indicative of the level of visits on a
regular basis because of the widespread interest in the introduction of the company's site.
"Although our initial results are encouraging, the success of on-line marketing cannot be currently determined, and to achieve
further participation in this market will require substantial additional financial resources, development and acquisition of technology,
investments in marketing, and contractual relationships with third parties.
"Results will also be affected by existing competition, which the Company anticipates will intensify, and by additional entrants to
the market who may already have the necessary technology and expertise, many of whom may have substantially greater
resources than the company."
Weiner continued: "Our commitment to make K-tel Express the premier on-line music service is supported by our recent
agreement with RealNetworks Inc. which will allow us to develop technology enabling the creation of customized CDs on-line
through K-tel Express.
"This will allow consumers to select from a variety of songs in a user-friendly manner to produce personalized compilation CDs
with customized artwork for almost any occasion.
"Further, we have entered into a non-exclusive agreement with BPI Communications Inc. which allows K-tel Express to feature
BPI's Billboard industry music charts on our Web site, allowing viewers quick access to the most respected tabulations of music
and video sales, video rentals and radio play in the market.
"In addition to K-tel Express, the other primary businesses remain well-positioned for growth. The Recording Industry Association
of America recently certified our Club Mix '98 compilation CD as platinum, and the expansion of our music business continues,
supported by new distribution agreements with a number of leading record labels, including Salsoul, Unemcumbered, Rowdy
Records, Wave Music, Diversified Music Distribution, Brooklyn Music Limited and X-sight Records.
"We are also pleased with the progress the Company made during the quarter in our direct response business. We expanded and
strengthened our European operations adding direct-to-the-consumer fulfillment capabilities in France, Belgium and the United
Kingdom.
"The acquisition of Regal Shops' long-term broadcast contracts on RTL9 in France and VT4 in Belgium now enables us to market
products to consumers in France, Belgium, Germany, Luxembourg, Austria and Switzerland, complementing our already strong
position as one of the leading direct response marketers in Germany, and positioning us in the upper echelons of all television direct
response marketers in Western Europe."
K-tel International is a vertically integrated developer, marketer and distributor of entertainment and consumer products
worldwide. The company markets its product lines either to retailers, wholesalers, distributors, or licensees throughout the world,
or directly to the consumer via television and other forms of direct response media, including the Internet which was introduced on
May 1, 1998. K-tel has active operations in the United States, Canada, the United Kingdom, Germany and Finland.
The statements in this news release may contain forward-looking statements relating to future results of the company (including
certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projections as a result of certain risks and uncertainties,
including but not limited to, changes in political and economic conditions, demand for and market acceptance of new and existing
products, the impact from competition for Internet content, merchandise and recorded music, dependence on strategic alliance
partners, suppliers and distributors, market acceptance of the Internet for commerce and as a medium for advertising,
technological changes and difficulties, availability of financing and other risks detailed in the company's Securities and Exchange
Commission filings. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking
statements.
K-tel International, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands)
(unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
NET SALES $16,427 $18,477 $64,777 $51,230
COSTS AND EXPENSES:
Costs of goods sold 8,635 9,612 35,941 25,520
Advertising 3,646 2,816 11,823 8,534
Selling, general
& administrative 5,221 5,411 16,117 13,772
Total Costs and Expenses 17,502 17,839 63,881 47,826
OPERATING INCOME (LOSS) $(1,075) $638 $896 $3,404
NON-OPERATING INCOME (EXPENSE)
Interest income 15 35 40 65
Interest expense (130) (5) (305) (26)
Foreign currency
transaction gain (loss) 17 (176) (27) (125)
Total Non-Operating
Income (Expense) (98) (146) (292) (86)
INCOME (LOSS) BEFORE BENEFIT
(PROVISION) FOR TAXES (1,173) 492 605 3,318
BENEFIT (PROVISION)
FOR INCOME TAXES 221 18 88 (204)
NET INCOME (LOSS) $(952) $510 $693 $3,114
NET INCOME (LOSS) PER SHARE;
BASIC $(0.13) $0.07 $0.09 $0.42
DILUTED $(0.12) $0.06 $0.09 $0.40
SHARES USED IN THE CALCULATION
OF INCOME (LOSS) PER SHARE;
BASIC 7,632 7,526 7,625 7,503
DILUTED 8,162 8,154 8,138 7,811
CONTACT: K-tel International Inc., Calabasas
Corey Fischer, 818/225-6160
or
Coffin Communications Group, Sherman Oaks
Michael Manahan, 818/789-0100
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